Robert J. Coen, considered the leading forecaster of advertising spending, has confirmed widespread worries that 2001 is likely to bring the slowest growth in a decade to that closely watched economic indicator by revising his estimate for the year sharply downward.
"I have to confess, it's a lot worse than I thought it would be," Mr. Coen, senior vice president and forecasting director at Universal McCann in New York, said as he presented his revisions in a speech yesterday morning. The reduced estimate is more in line with several made recently by industry analysts that reflected the continued slowdown in the American economy.
Still, Mr. Coen, who has studied advertising spending trends for more than five decades, offered a more optimistic outlook for 2002, in part because the comparisons will be easier next year when the numbers are contrasted with the weak results of 2001.
Mr. Coen's reduced estimate for American ad spending in 2001, made as part of his annual midyear forecast, was his second revision downward in six months. Ad spending this year will total $249.8 billion, Mr. Coen forecast, up 2.5 percent from $243.7 billion in 2000, an amount he recently revised upward because of new data that showed last year, the strongest in Madison Avenue's history, concluded even better than expected.
"It's now apparent the economy has softened to such a degree that it's unrealistic to expect advertising to outpace" the sluggish climate, Mr. Coen said.
"Over all, the media marketplace was pretty weak in the first quarter," he added. "It's not dead, but there are signs it will be stagnant for a while."
If Mr. Coen's reduced estimate for 2001 holds, and there is much data from the first five months of the year to suggest it will, this year will show the smallest growth in American ad spending in the last 10 years. Since 1991, when ad spending fell 1.2 percent, marketers have increased their ad budgets by amounts as low as 4.2 percent (in 1992) to as high as 9.6 percent (in 2000).
But the softness in the national economy, primarily in industrial output, along with the shake-out that has halved the number of dot-com companies advertising in traditional media, mean that 2001 will lag what had been predicted. That is particularly daunting for the advertising and media industries since those forecasts had been rather modest to begin with, because ad spending almost always grows more slowly in a year after an Olympics and a national election.
Often, the downward spiral feeds upon itself, said Alan J. Gottesman, an analyst at West End Communications/Consulting in New York, because marketers' decisions about ad budgets in tough times are very much like those made by investors when the stock market falls, in that "rather than jump on bargains when prices go down and the merchandise goes on sale, the customers run out of the store."
"The advertisers think `I'd better hold onto my money because I may get better deals,' " Mr. Gottesman added, which explains why the upfront market for the sale of commercial time by the television networks in advance of the 2001-2002 season is getting off to such an unusually slow start.
The decision by Mr. Coen to revise his 2001 forecast again was greeted positively by many analysts and media executives.
His forecast is now "very much in line with our forecasts," said Lauren Rich Fine, an analyst who follows the advertising industry for Merrill Lynch. "It's a good outlook."
At the Aegis Group in London, a large media services agency, the reaction was that "it's nice to know we're not a million miles away" from each other's forecasts, a spokesman, Richard Walters, said. At a conference last week, Aegis predicted that American ad spending would grow 2.4 percent this year.
"If anybody didn't see this coming, they weren't paying attention," said Joe Mandese, editor of Media Buyer's Daily, a newsletter being introduced by Brill Media Holdings in New York.
"This year is an anomaly, a correction year," Mr. Mandese added. "People have to be happy it isn't worse" because Mr. Coen's revised forecast would mean "we've officially missed an advertising recession."
In June 2000, Mr. Coen estimated that ad spending would grow 6.5 percent in 2001 from 2000. He reduced that at a presentation in December to an increase of 5.8 percent. The second cut, made yesterday at a presentation at the University Club in Midtown Manhattan, represents one of the largest revisions downward of his forecasting career.
Because 2000 was "quite fabulous," Mr. Coen said, citing ad spending for the Olympics, elections and the millennium celebration, 2001 is suffering by comparison.
The $249.8 billion total that Mr. Coen is now predicting for this year breaks out to a 2.1 percent increase in national ad spending, to $151.3 billion from $148.1 billion in 2000, and a 3.1 percent increase in local ad spending, to $98.5 billion from $95.6 billion. By comparison, his revised totals for 2000 showed a 12 percent gain in national advertising from 1999 and a 6 percent gain in local advertising.
National advertising this year is being dragged down, Mr. Coen said, by spending cutbacks in categories like automobiles, beverages and snacks, brokers and mutual funds, cigarettes, drugs, food, restaurants and telecommunications. Those reductions are overshadowing growth in categories like airlines, apparel, banks, liquor and movies, he added.
Ad spending this year will increase only slightly or even decline in national media like broadcast network television (down 2.5 percent) and spot television (down 6 percent), radio (up 2 percent), magazines (up 1 percent) and newspapers (up 1 percent), Mr. Coen said, offsetting gains for cable TV (8 percent), direct mail (4.5 percent) and the Internet (10 percent).
In local media, ad spending will rise 1 percent, he added, and somewhat more in TV (3 percent), radio (5 percent) and directories (5 percent).
Under Mr. Coen's second revised estimate, ad spending this year would represent 2.41 percent of gross domestic product, compared with a record 2.45 percent in 2000. Still, it would be at its second-highest level ever, above 1999, at 2.39 percent, and 1998, at 2.35 percent.
Mr. Coen's forecast for 2002, the first he is making for next year, calls for American ad spending to increase 5 percent from his revised total for 2001, to $262 billion.
"People are already writing off 2001 and are focused on 2002," Ms. Fine at Merrill Lynch said. "I was very encouraged by his outlook" that growth would return to more recent norms next year.
Turning to results overseas, Mr. Coen predicted that ad spending for 2001 would total $231.2 billion, up 5 percent from $220.2 billion in 2000. It would be the first time since 1995 that ad spending abroad would increase more in percentage terms than in the United States.
Mr. Walters said the Aegis estimate for ad spending growth outside the United States this year was close to Mr. Coen's, at 6 percent.
The new Coen worldwide total for 2001, then, is $481 billion, an increase of 3.7 percent from his revised worldwide total of $463.9 billion last year. It would be the smallest percentage gain for global ad spending since a 2.6 percent increase in 1998.
For 2002, Mr. Coen again estimated that ad spending overseas would climb at a faster rate in percentage terms than in this country. His preliminary forecast is a total of $244 billion, up 5.5 percent from 2001.
Mr. Coen's worldwide total for next year, then, is $506 billion, up 5.2 percent from 2001.
"It crosses the half-trillion line" for the first time, he noted in a tone that mixed optimism and wariness.
Universal McCann is a media services agency that is part of the McCann-Erickson World Group, owned by the Interpublic Group of Companies. As if to underline Mr. Coen's predictions of a problematic 2001, Interpublic disclosed late yesterday that it would sharply lower estimates of second-quarter earnings, to 30 to 35 cents a share from an estimate on March 19 of 40 to 45 cents a share.
Sean F. Orr, executive vice president and chief financial officer at Interpublic, said it might take cash and noncash charges of more than $300 million in the second and third quarters, related to its pending acquisition of True North Communications. (True North late yesterday also reduced its estimates of second- quarter earnings, to 37 to 42 cents a share from 44 to 54 cents a share.)
It was Mr. Orr who introduced Mr. Coen at the presentation, beginning his remarks with a reference to the "old Chinese curse, `May you live in interesting times,' " adding, "We're all affected by that curse this year."
Stuart Elliott, The New York Times. June 15, 2001
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